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WOLF BLITZER, CNN ANCHOR: It's noon in New York City, 9 a.m. in Los Angeles, 6 p.m. in Paris, and 8 p.m. in Baghdad. Wherever you're watching from around the world, thanks very much for joining us for this special "LATE EDITION." We're live from New York's Madison Square Garden. I'll be speaking with Bush-Cheney campaign chairman Marc Racicot in just a few minutes. First, though, let's go to CNN headquarters for a quick check of what's in the news right now.

(NEWSBREAK)

BLITZER: We're watching developments here as thousands of Republican delegates begin gathering in New York City. The man they will renominate is hitting the campaign trail just as hard right now.

The president began the day by attending church in Washington, D.C. At this hour, he's heading for the battleground state of West Virginia where he will address a rally later this afternoon.

The president won't be arriving in New York City until Thursday, but the vice president, Dick Cheney, already here. He's scheduled to attend a rally this hour on Ellis Island. Your looking at live pictures there. He'll try to jump-start this convention for the Republicans.

But while the Republicans are in the spotlight, some prominent Democrats also are making their presence strongly known in New York City as well. Across town this hour, the former president, Bill Clinton and New York Senator Hillary Clinton are among those attending worship services at the famed Riverside Church. You're looking at live pictures now.

President Clinton will be speaking to the congregation. That's coming up later. We'll have coverage of both the vice president and the former president this hour.

Madison Square Garden will be friendly territory for the Republicans this week, but outside the streets are filled with tens of thousands of protesters. CNN'S Deborah Feyerick is covering that part of the story. She's joining us now live.

Deborah?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, Wolf, waves of protesters shooting (ph) up Seventh Avenue. Let's take a look at some of what's going on. This is the amount of people that has been passing our location here, and it's been steady for the last 25 minutes that we've been here.

The protest starting a couple minutes earlier than it was expected to. Eight hundred diverse groups, many more individuals. Their message, they are against President Bush. They are against war in Iraq.

EVANS: And we say, bring the troops home. Support them. Bring them home. End the war in Iraq and the occupation in Iraq. And end the war on the American people and the values of this country.

FEYERICK: Tell me about the mood of the crowd here?

EVANS: It's so celebratory. It's people exercising their patriotic duty which is to protest when America's being violated. They're using their voices. They're using their freedom of speech. They're celebrating what they know is right, and they're saying no to the Bush agenda.

FEYERICK: Jodie Evans from Code Pink, thank you very much.

And that's generally the feeling here. Police thought there might be some violence, but right now, just a lot of loud cheering and a steady stream of protesters.

Wolf?

BLITZER: All right, Deborah Feyerick. We'll be watching these demonstrations all here afternoon here in New York City.

With new polls showing the president inching ahead of the Democratic nominee, John Kerry, Republicans are no doubt expecting their convention to help the president solidify that lead. Joining us now to talk about what we can expect to hear from the president and his supporters throughout this week, the chairman of the Bush-Cheney campaign, the former Montana governor, Mark Racicot.

BLITZER: The Census numbers came out this week showed that another million and a half, almost, Americans lost their health care this year -- 45 million total. 1.3 million fell into poverty. When the question is asked from a lot of Americans, are you better off today than you were four years ago, they're going to say no.

RACICOT: No, I would disagree, Wolf.

First of all, of course, that study has a lot of context that isn't easily provided. The fact of the matter is that, in comparison to previous recessions, and we've come out of previous recessions, we're in exceptionally good shape in comparison to those recessions.

And it measures data from a year ago. It doesn't calculate all of the new jobs that have been created throughout the course of 2004. So there's a lot of good news.

And frankly, I think that's a fair question; so does the president. I believe the American people answered absolutely, yes. We're safer and we have a more prosperous in front of us.

We inherited a recession when we came here. It's been a challenge. The president has steered us through those troubled waters.

BLITZER: This will be the first administration, though, that over four years, there was a net loss in jobs created, as opposed to an increase in jobs created. That's pretty, pretty serious.

RACICOT: Well, the job loss started before he became president, and that's the reality of it. And secondly, the fact of the matter is there are more Americans working now than ever before in our history. And our unemployment rate is below of what it was in the '70s, '80s and '90s.

So I believe that we're going to be able to measure some fundamental shifts in how the economy works. And it's going to be revealed to us, when we have some history behind us, exactly what it is that's taken place with this economy and its changes.

BLITZER: The economy has not, though -- the growth of the economy has not generated the kind of job recovery at least so far. And the president's tax cut plan has not stimulated the job growth the way you would have liked.

RACICOT: Well, that depends on the dynamics I was just talking about. We've got 1.5 million new jobs, measured by the payroll survey. We know that, since a year ago. And if you take the household survey, then it's extraordinarily larger than that -- I mean, many, many thousands, hundreds of thousands of jobs larger than that.

And the fact is that our employment rate is historically low at 5.5 percent. And that's lower than '70s, '80s and '90s.

BLITZER: Does the president deserve to be reelected? That's the question the Los Angeles Times asked. Take a look at this: 47 percent said yes; 49 percent said no; don't know, 4 percent. Does that bode ill for the president's chances of getting reelected, those numbers?

RACICOT: Well, we've always believed this was going to be a very close contest. I don't think anything bodes necessarily ill, nor does it provide an advantage to us beyond what you would normally have.

I think the truth of the matter is this president has in excess of a 50 percent approval rating at this moment in time. President Clinton had something similar to that. President Reagan had something similar to that at the same moment.

So we have every reason to be inspired. But we know this is going to be very, very challenging. It's a very close contest.

BLITZER: What about the deficits?

By the way, here's the president, the former president, Bill Clinton. He's going to be speaking at this church, Riverside Church, here in New York City this hour. He's speaking at the end of this church service. Let's listen in briefly to hear what he says.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, FORMER PRESIDENT OF THE UNITED STATES: ...campaign advertising, something I was glad to see you advocate.

(APPLAUSE)

I was looking, as Denny Ferrell (ph) and my longtime friend Congressman Rangel were introduced, and thinking about Hillary this morning, talking about her service on the Armed Services Committee on the television programs...

(END VIDEO CLIP)

BLITZER: All right, we're going to monitor what the former president is saying at this church service and get back there once it gets a little bit more interesting. We'll monitor what he says.

Governor Racicot, the deficits. This is an enormous problem for future generations, a serious problem right now: conservative Republicans generating record deficits -- $450 billion.

Isn't this a serious setback for the overall nature of the economy, given the fact that when the president took office, there were surpluses literally as far as the eye could see?

RACICOT: Well, first of all, they were projected over 10 years. When you talk about surpluses, they weren't...

BLITZER: But they were real surpluses, for three years.

RACICOT: But the fact of the matter is it's a serious issue, Wolf.

BLITZER: There were surpluses for three years at the end of the Clinton administration.

RACICOT: As the president has said, it is a serious issue.

He has confronted this issue like any family would or any business person would. You have a choice between dealing with recession, an attack upon this country, and also dealing with deficit, and scheduling it in a way that allows you to protect people and also take care of the recession at the same moment in time. And you have to prioritize.

That's why he has a plan to eliminate it. And we've seen that plan already working with a decrease substantially by several -- I think it's something close to $75 billion reduction in the projected deficit just since the beginning of this year.

BLITZER: But from last year, it increased in terms of real deficits.

RACICOT: It increased to this year, but the projected amount has substantially decreased because of the president's job growth policies.

BLITZER: Are you embarrassed at this deficit, given the fact you're a conservative, former governor of Montana. Are you embarrassed that it's as high as it is?

And the fact is, you have to make a choice. When you're under attack, when you're at war, are you going to protect the people of this country? And are you going to assume some debt to be able to do that? That was the choice that was presented.

BLITZER: The president acknowledged in an interview in The New York Times this week that there was a miscalculation involving the Iraq war. This is going to be an issue of enormous importance to voters going in. He says there was a miscalculation. At the end of major combat, about 100 U.S. troops have died, now nearly 1,000.

Is this going to be the main issue going this campaign?

RACICOT: I think it always is an issue. Our defense and our security is always an issue, because people can't live in safety and freedom unless they know that they're not under attack. So there's no question, national security's always an important issue.

BLITZER: Did that miscalculation result in these hundreds of U.S. troops getting killed?

RACICOT: Well, let's talk about the nature of war. The nature of war is such that it is never predictable. The fact of the matter is, our armed forces were so effective and moved with such speed and such dispatch, that in fact they got to Baghdad before it was anticipated. So, the fact is that there were all kinds of intricate and very detailed plans. But you're talking about war, for God's sake. This is not something that is easily capable of definition at every given circumstance.

BLITZER: But shouldn't the U.S. military, given the warnings that General Shinseki, the former Army chief of staff, and others said, that they needed a lot more troops to deal with the post-major combat operation, shouldn't the administration, the president, the commander in chief, the defense secretary, shouldn't they have done a better job in planning for the post-war situation?

RACICOT: The unanimous verdict of commanders on the ground, their experience, of capable people that we have extraordinary confidence in, revealed the troop strengths that they thought were needed necessary. That's what the president made certain was absolutely provided.

So, I just think you need -- I think the American people understand the nature of war is such that there are going to be some precipitating factors that are unexpected. That's what the president was saying.

BLITZER: The CNN-USA Today-Gallup poll asked, should the president specifically denounce those Swift Boat ads that are going after John Kerry's Vietnam War service? 56 percent said yes, 32 percent said no.

Why won't the president simply utter those words that John McCain and others want him to utter, that these ads are inappropriate?

RACICOT: Well, the president has said that. He said not only this ad, all ads.

You know, there's a real lack of sincerity here, with the opposition. We went to court, we went to the Federal Election Commission back in April. We asked them to join us. They declined.

The president has asked from Senator Kerry every day to join this effort to try to eliminate them. We now are going to court to actually try and do it, and there's still no engagement.

See, the lack of sincerity is revealed by the notion, or by the understanding, that it's just some of the ads they don't like. In other words, it's the ones that happen to put them in a bad or negative light. They don't want all of them removed.

We have a principled position. We want all of them removed, and the president has said, "I do not like these ads. I do not think they are an appropriate part of the process" -- any of them, including the Swift Boat ads.

BLITZER: The CNN-USA Today-Gallup poll believes that -- at least Americans who answered is the president responsible, responsible for the Swift Boat ads, 50 percent said yes, 44 percent said no.

One of your top lawyers from your campaign, Ben Ginsberg, this week resigned because he was also the lawyer for the Swift Boat ads.

Doesn't that reinforce the coordination...

RACICOT: No.

BLITZER: ... between the campaign and the Swift Boat Veterans for Truth?

RACICOT: No, as a matter of fact, the law specifically excludes the provision of legal services. And John Kerry's lawyer provides all kinds of aid and assistance, legal advice, as is allowed by law, to other agencies, other entities. So does the counsel at the Democratic National Committee, does the same thing.

Our counsel did not resign because there was a problem with what the law provided or with an ethical issue. He resigned because he knew there was a hypocritical double standard that's being applied, and he did not want to become a distraction.

BLITZER: When did you know he was also the lawyer for Swift Boat Veterans for Truth?

RACICOT: The night that he decided that, look, I got a call today and there was inquiry made. It was such a routine matter. I mean, the fact of the matter is, these lawyers for the other side have been doing this for a very long period of time.

So that day I found out, that day he decided I'm not going to distract away from the efforts of a man I deeply respect and I care a lot about.

BLITZER: It looks like you will have a successful convention here.

RACICOT: We're going to work hard at it. Thank you.

BLITZER: Everything ready?

RACICOT: Everything's ready and in order.

BLITZER: No problems?

RACICOT: There will always be a problem. There is always -- in this human condition, it's like you talk about with the nature of war. In this human condition we share, there's always a circumstance that presents itself, but we have planned for everything that we can think of.

BLITZER: And those demonstrations outside?

RACICOT: Well, I walked through them. I think that they're orderly. We anticipated that there would be Americans here that would want their opinions and their voices heard. And I think that's entirely appropriate, as long as the rights of everyone are respected.

BLITZER: Good luck with the convention. RACICOT: Thank you, sir.

BLITZER: Thanks very much.

Governor Marc Racicot, the chairman of the Bush-Cheney campaign.

And as Republicans take the political spotlight here in New York, Democrats are also planning what they're calling a rapid response. We'll get details from the New York Democratic senator, Hillary Rodham Clinton. She'll join me.

And later, President Bush's convention speech: What can we expect? A special conversation with a top Republican strategist, Ralph Reed. He'll be here, as well.

Plus, gearing up for the fall campaign: We'll assess the Bush- Kerry contest with former Democratic presidential candidate Howard Dean.

"LATE EDITION," live from Madison Square Garden, will continue right after this.

(COMMERCIAL BREAK)

BLITZER: "LATE EDITION's" Web question of the week: Will you watch President Bush's acceptance speech on Thursday? You can cast your vote right now. Go to cnn.com\lateedition. We'll have the results later in this program.

Up next, though, inside the Democrats' war room with the New York senator, Hillary Rodham Clinton. She'll join me.

You're watching "LATE EDITION," the last word in Sunday talk.

(COMMERCIAL BREAK)

BLITZER: Welcome back to this special "LATE EDITION," live from New York's Madison Square Garden. I'm Wolf Blitzer reporting.

Although the Republicans are front and center here this week, Democrats aren't planning to stand quietly on the sidelines. They have a team already in place, as did the Republicans, by the way, last month in Boston, to counter the GOP's message.

The junior Democratic senator from New York state, Hillary Rodham Clinton, is a key part of that Democratic Party effort. Just a short while ago here at Madison Square Garden, I spoke with Senator Clinton about the Republican Convention, concerns about terror and much more.

(BEGIN VIDEOTAPE)

BLITZER: Senator Clinton, welcome to Madison Square Garden. You've been here many times, but not at a Republican Convention.

SEN. HILLARY CLINTON (D), NEW YORK: You're absolutely right about that. In fact, as we were just talking, there's never been a Republican Convention in New York before. So I'm delighted to be part of the welcoming committee.

BLITZER: You wanted this Republican Convention here in New York, didn't you?

CLINTON: I wanted anything that would show that we were open for business and just the greatest city in the world after 9/11. And I'm delighted that the Republicans are here. I hope they spend a lot of money and a lot of time here.

BLITZER: Is it going to cost New York State a lot of money to deal with this Republican Convention?

CLINTON: Well, the security costs are enormous. We were able to get some money from the Congress to help defray the costs in both New York and Boston. But, you know, it's just a very difficult financial commitment to do what we do better than anybody in the world, which is provide security.

And I'm hoping that, maybe as a result of their being here, the Republicans, led by the president, will give us some more help with our homeland security needs.

BLITZER: Is everything in place security-wise? Are you confident that the threat levels and all of that have been worked out so that everyone who comes here will be safe and secure?

CLINTON: You know, Wolf, I met earlier with the mayor and Commissioner Ray Kelly. I'm confident that they have done everything they know to do that is humanly possible.

Now, I do wish we had more federal resources for our ports, for example, for our rail lines, for our subways. But given what needed to be done, I am very confident that the team in New York City has done it better than anybody else could.

BLITZER: All right. Let's talk a little bit about politics right now. Those Swift Boat ads going against the Democratic presidential nominee, John Kerry. Did he wait too long to respond vocally and aggressively and deal with that issue?

CLINTON: You know, Wolf, it's so sad that these smear tactics have been undertaken by this group and, apparently, with at least the knowledge, if not complicity, of high-ranking members in the Bush administration.

And this is a tactic not only to impugn the courage and the character of Senator Kerry, which I think is beyond dispute -- the chairman of the Armed Services Committee, on which I serve, Senator Warner, was the secretary of Navy during this time. He said that, you know, John Kerry earned and has earned every medal he received.

But this is really an effort to not only, you know, fight the Vietnam War all over again, but to divert attention from the issues that are important right here and now and that will affect the future of our country, at home and abroad.

BLITZER: Who are the high-ranking officials in the Bush administration who were at least complicit in this?

CLINTON: Well, of course, the counsel to the campaign, who had to resign. And then very close...

BLITZER: But he's not a member of the administration. He's a member of the campaign.

CLINTON: But I said the campaign, the campaign. But, you know, I mean, I think we're splitting hairs.

But the real bottom line is that they were not only inaccurate, but they were smear tactics. And they were designed to divert attention.

So, you know, people are focused on the response. A lot of the outrage is by the effort to try to undermine the heroism and courage of a young man who did his duty for his country, came home, and has had a distinguished life of public service.

BLITZER: But one thing you learned and former President Clinton learned early on, when attacked, you don't wait, as Michael Dukakis did in '88. You go right back on the offensive. He waited two, three, four weeks as this was building up and up and up. And clearly, according to the polls, it's had a negative impact on him.

CLINTON: Well, I think that, you know, you can always debate tactics. The bottom line is that these were, you know, smears. And I think the American public are seeing that.

And they're also understanding that this convention, which is about to start tomorrow, is sort of a bait-and-switch convention. They're going to talk about things that they are, you know, not really committed to. They're going to have leaders who don't have any influence in Washington.

And I think what the Kerry campaign has done in a very consistent way is to point out the miscalculations and the wrong direction that this administration has taken us.

BLITZER: You said in an interview in the new issue of Time magazine, and you're hinting at it right now, "I don't think that we have had a president in recent memory who did such an about-face after getting elected. I can only conclude that he's a bait-and-switch politician."

All right. Explain specifically that charge.

CLINTON: Right. Well, you know, just two examples.

The compassionate conservative theme that we heard all the time in 2000, and this administration has been neither compassionate nor conservative. Certainly, it's been quite radical on many agenda items, most particularly the abrupt move back into these deficits and the reckless fiscal policies, the fact that no jobs have been created, that...

BLITZER: But didn't he avoid a recession?

CLINTON: No, no.

BLITZER: Wasn't there 9/11? Weren't there factors out there that caused these economic problems?

CLINTON: Well, you know, Wolf, there's always a business cycle. And the recession technically started in March of 2001, and there probably would have been some need for adjustments.

But what this administration has done is to throw the baby out with the bath. Instead of making mid-course corrections, instead of having some affordable tax cuts, they, indeed, had these massive tax cuts that totally obliterated the surplus that was projected.

And because of that, they have not been able to find their footing when it comes to the economy. And this will be the first administration since Herbert Hoover under which not one new job has been created.

Across the domestic agenda we see that. You know, the recent Census figures: 4 million people have fallen into poverty, 5.2 million people have lost their health insurance.

These are dire bits and pieces of information that, I think, put together, paint a very dramatic picture of an administration that said it would do one thing and has done something else.

BLITZER: In the past year, though, things have gotten better. A million new jobs have been created in the past year, albeit that a few million were lost in the first...

(LAUGHTER)

CLINTON: Albeit? If it's your job, that's pretty important.

BLITZER: But it's still getting better. The economic growth of the country seems to be moving in the right direction.

CLINTON: I just don't see that. I think that there have been, you know, some signs of improvement, thank goodness, for everybody's sake. But on balance, what you've got are 4 million more people in poverty than there were just 3 1/2 years ago; 5.2 million people who've lost their health insurance; 45 million people without health insurance now; not one new net job created.

And, you know, this president also campaigned on being a uniter, not a divider. And, for goodness sakes, that was the greatest bait and switch, you know. And it's especially painful for many of us because, after 9/11, we united behind our president, and I thought that was the appropriate thing to do. But instead of using that unity, the president has gone far to the right and has appealed to the most right-wing elements of his constituents.

BLITZER: Having said that, let's take a look at the latest CNN- USA Today-Gallup poll. "Who's more likely to stand up for what he believes in?" The president, 52 percent; John Kerry, only 35 percent.

The American people are confused, at best, about John Kerry, what he stands for. That's a problem he has.

CLINTON: Well, I think, though, as the campaign has moved forward and the issues have been joined, I'm very confident that by November a majority of voters is going to say that you can be consistent, and maybe in some respects that is a positive, but when you're consistently wrong, as this president has been, and refuse to make any kind of mid-course adjustments -- finally the president on Friday in an interview said that he made a miscalculation in Iraq.

Well, all of us have known that for months. You know, he refused to admit any mistakes.

This president is on a path that, with four more years, would render our country really unrecognizable. You would see a decrease in the standard of living, a decrease in the income for the middle class, an increase in poverty. So many of the indicators would be going in the wrong direction.

BLITZER: The miscalculation he spoke about was the miscalculation that there would be such a spectacular, swift defeat of Saddam Hussein, and that they weren't necessarily ready for that huge victory in time to deal with the reconstruction.

CLINTON: Well, that's how he's tried to spin it. But as a matter of fact, there were a lot of people inside and outside the government who predicted exactly what happened. And they were given absolutely no opportunity to have their voices heard.

And, in fact, when the economic adviser, Mr. Lindsey, said this was going to cost $200 billion, when General Shinseki said this was going to be at least 200,000 troops, those were people who were basically shut out completely. They had a view of reality that was wrong.

So you can say that he's consistent, but he's been consistently wrong. He's wrong on issues about the economy, he's wrong on issues on education, on health care, on energy, on the environment, that I think all add up to a very strong case against him.

BLITZER: Do you agree with John Kerry that Donald Rumsfeld should resign as defense secretary?

CLINTON: Well, I'm hoping that the entire team is fired on November 2nd. I don't think this is just about the secretary of defense. I think this starts at the top, with the president and the vice president. And I'm hoping that we'll have a change in administrations.

BLITZER: So at this point you're not going to say what John Kerry said, that he should go?

CLINTON: Well, I think that, you know, it's a perfectly defensible position, but I'm looking even beyond that. I want to see all of them gone.

BLITZER: Do you agree with the president? He'd like to see all of these so-called 527 advocacy groups that are putting out all these attack ads, attack ads against John Kerry, the Swift Boat ads, attack ads against the president, would you like to see those 527 organizations removed?

CLINTON: You know, I have no problem with eliminating any group that is misusing their financial position to spread inaccurate falsehoods.

And that is indeed what has happened with respect to Senator Kerry. I haven't seen a lot of the other ones. I don't have a comment on that.

BLITZER: The other ones, ones that are attacking the president, are pretty, pretty strong, the ones from MoveOn.org and some of these other groups.

CLINTON: Right. Well, you know, then I think we need to take a look at all of this.

But the point here is that these smear tactics against Senator Kerry, which are totally wrong and false, are being used to divert attention back 35 years, when we should be looking forward four years.

And we need to keep our focus on what this administration, given what it's already done, is likely to do to our country if they have all the power as they're seeking in the next four years.

We're also monitoring other live developments under way here in New York City, including Governor George Pataki, the governor of New York State. He's speaking out on Ellis Island right now, kicking off this Republican National Convention.

Across town at the Riverside Church, the former president of the United States, Bill Clinton, has just wrapped up speaking to churchgoers there. You see the former first lady, now the senator from New York, Hillary Rodham Clinton, there, as well. We taped our interview with her just before she went over to the church to meet up with her husband.

We're watching all these developments, including these large protests unfolding outside Madison Square Garden here in Manhattan. You're looking at live pictures of that.

We'll take a quick break, a check of what's making news right now. That's coming up. Then more of my interview with New York Senator Hillary Rodham Clinton.

More of our special "LATE EDITION" from Madison Square Garden. That's coming up.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: ... a man of his word, as the Taliban were the first to find out. Under the president's leadership, we drove them...

(END VIDEO CLIP)

BLITZER: Vice President Dick Cheney speaking at Ellis Island, welcoming Republicans to the national convention here in New York. We'll watch his words, go there live if necessary. The vice president of the United States already in New York for this week of the Republican National Convention.

Welcome back to "LATE EDITION."

Now let's continue with more of my interview with the New York Democratic senator, Hillary Rodham Clinton.

(BEGIN VIDEOTAPE)

BLITZER: Do you regret your vote in favor of giving the president the authority to go to war against Saddam Hussein's Iraq?

CLINTON: You know, Wolf, I have said I don't regret giving the president authority. I regret deeply the way he used that authority. And I think there is plenty of reason for us to question the decisions that were made from the moment that he received that authority.

BLITZER: But when you voted for that resolution, like almost everyone else, you believed Saddam Hussein had weapons of mass destruction?

CLINTON: Right, right. Well, indeed I did. And if someone asked me that if we had known then what we know now, there wouldn't have been a vote. You know, no administration would have come to the Congress and asked for a vote that would have authorized any kind of action based on what we now know.

But, you know, we are where we are. And what we have to do at this point is get new leadership, so that we can prosecute the war on terrorism more effectively, so that we can actually have a fighting chance to be successful in Iraq.

BLITZER: Did those nearly 1,000 U.S. troops who have died in Iraq die in vain?

CLINTON: Oh, Wolf, I think that, you know, the removal of Saddam Hussein and the actions that our brave men and women in uniform have taken are a great credit to them, their families and our country. And they paid the price of their service in an ultimate fashion with the loss of their lives, plus the many who have been grievously injured. You know, what we need to be focused on is which president is more likely to make decisions that will achieve our objectives with putting the least amount of lives at risk? You know, we were successful in Kosovo and we didn't lose a single American military person. And I think we need a smart strategy.

You know, I resent it when the Republicans say that we're better, meaning they are better, on national defense than the Democrats. It was Democratic presidents who prosecuted the wars that were successful in this past century that, you know, there's no debate about. And I am a strong proponent of a national defense that is smart.

BLITZER: But you have to admit, it was Democratic presidents, your husband, and Republican presidents, the first President Bush, who really didn't do enough to prevent this al Qaeda terror organization from developing the way it did throughout the '90s.

CLINTON: Well, I think, Wolf, the 9/11 Commission has it right, that there were probably 10 missed opportunities -- six of them during the first eight months of the Bush administration, four during the eight years of the Clinton administration.

But they also pointed out that the exemplary fashion that the Clinton administration dealt with the millennium threat is what should have been done going forward.

You know, every one of us learned things. The American people learned things about what our real threats were. Now we have to make sure we're doing all that we can do.

And that's where I part company with the administration. I don't think their homeland security strategy is up to the task that we confront.

BLITZER: We only have a little time left. I want to get through a couple points: Iran, one of the axis-of-evil countries based on what president said a couple of years ago.

How worried are you that the Iranians are developing a nuclear bomb? And what, if anything, should the U.S. do about it?

CLINTON: Well, obviously I'm concerned. I mean, the information coming out of Iran is somewhat mixed but, I think, points to a continuing desire to at least have nuclear capacity. And we need to be, you know, as engaged as we possibly can. And we need, this time, to try to bring the rest the world along with us.

BLITZER: Can the U.S. tolerate a nuclear power in Iran?

CLINTON: Well, I hope we never reach that point. I hope we're able, through a different approach than this administration has taken to date, in trying to muster public opinion and working with others as well as the Iranians, to try to reach a point where that's not necessary.

You know, the principle architect of the Iranian nuclear capacity is Russia. And, you know, we have a lot that we should be doing with Russia that we're not.

I just came back from a trip with John McCain to Estonia, the Arctic, and Iceland. And there's a lot of concern about, you know, Russia's actions and motivations.

There's a lot we should be doing. And we are so totally diverted in a way that I don't think leads to a safer, stronger America in the world.

BLITZER: You're a member of the Senate Armed Services Committee. There are reports now that the FBI's investigating the possibility of an Israeli spy at the Pentagon. What have you heard about this? Can you give us some perspective?

CLINTON: Wolf, all I know is what I read in the paper. I returned from this trip to the Arctic and Iceland, Ireland, other places last night. I've read the articles, and I'm waiting to see what the investigation proves.

BLITZER: You haven't checked? Your staff hasn't checked?

CLINTON: No. Well, they've been checking, but, you know, we're going to stick with what the public information is.

BLITZER: One final question. We spoke when you were running for Senate in Buffalo, New York, my hometown. You promised, at that point, you'd serve all six years, if elected. You've been elected. You're obviously going to serve six years.

But what about down the road in 2008, 2012? Would you like to be president of the United States?

CLINTON: You know, in 2008, I hope I'm going to be working for the reelection of John Kerry and John Edwards.

You know, I love my job. And I think you have a sense of it. I mean, you're from Buffalo. You know what a fabulous place New York is. I enjoy what I do every single day. I want to keep doing it.

BLITZER: A lot of conservative radio talk show hosts would love you to run for president.

(LAUGHTER)

CLINTON: Well, it's a perverse form of flattery, I know, their obsession with me. But I'm doing what I want to do. And I'm going to do the best job I can do to elect John Kerry president.

BLITZER: Is it possible that Rudy Giuliani, you think, might be challenging you for reelection?

CLINTON: I have no idea. I have no idea. You know, that's not how I think. I'm just focused on what I can do, which is the best job that I'm capable of doing for the people of New York and everything that I can possibly do to elect John Kerry, elect, you know, more senators in the Senate, which I think would be good for New York and the country.

BLITZER: Senator Clinton, thanks for joining us here at the Republican National Convention.

CLINTON: Indeed, indeed. Thank you, Wolf. Thanks very much.

(END VIDEOTAPE)

BLITZER: And up next, is this man the key to a permanent peace in Iraq? Take a look. We'll discuss the role of the Grand Ayatollah Ali al-Sistani and Iraq's future with the former coalition spokesman Dan Senor, who supports President Bush, and the former U.S. State Department counselor Wendy Sherman, who supports Senator Kerry.

"LATE EDITION" will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "LATE EDITION." We're live from Madison Square Garden here in New York City, home of the Republican National Convention.

Iraq could be very well the issue that determines the outcome of this U.S. presidential contest. President Bush is expected to highlight what he will say will be the successes of the war in his speech Thursday night.

Joining us now, two guests. Dan Senor is the former spokesman for the now-disbanded Coalition Provisional Authority in Iraq. He's a George Bush supporter. And in Washington, former ambassador and U.S. State Department counselor Wendy Sherman. She's an adviser to the Kerry campaign.

Good to have both of you on the program.

Dan, let me begin with you. What do you make of this deal in Najaf now that effectively allows Muqtada al-Sadr to go free?

DAN SENOR, FORMER CPA SPOKESMAN: Well, let's let that story play out here. I don't want to speculate prematurely, but we do know this: Muqtada al-Sadr signed a document that was sent to Ayatollah Sistani that says that he will withdraw his forces from Najaf, withdraw from Kufa, withdraw from the shrine. He's agreed to allow Iraqi police to reassert control of the city.

Our strategy before June 30th was to have Iraq in a position where Iraqi political leadership in a sovereign Iraqi government backed up by American and coalition military might could do the problem-solving. Political decision making by the Iraqis, backed up by the force and coalition pressure.

And that's exactly what happened in this, and this is what we should look for going forward.

BLITZER: Is this the way it's supposed to be, Wendy? WENDY SHERMAN, FORMER AMBASSADOR: I don't think this is the way it's supposed to be, Wolf. Although, I think we're all grateful in some ways to the ayatollah for brokering this deal. We now have fighting by Sadr's forces in Sadr City. We have still horrific problems in Fallujah.

And I found it very interesting that President Bush in Time magazine is quoted that had we -- I'm quoting him -- to do it again, we would have to look at the consequences of catastrophic success, going on to argue that it was because American troops were so successful that people escaped and lived to fight another day.

Now, that's either blaming the troops for success, or not taking responsibility for needing a plan to make sure that we knew how to deal with insurgency and knew how to deal with all of these terrible problems that now are leading us to nearly 1,000 American deaths.

BLITZER: We heard the president say this was a miscalculation. It didn't expect the victory over Saddam Hussein to go as rapidly as it did. I heard the same thing. Tommy Franks was on the show a couple of weeks ago. He made the exact same point.

Were you stunned that, because of the rapid demise of Saddam Hussein's regime, the U.S. really wasn't prepared for the reconstruction?

SENOR: Look, Wolf, I think it's important to reflect on these sorts of issues, and the president is doing that.

There were two whole divisions of the special Republican Guard that we never engaged because by the time the 3rd I.D. went north of Baghdad, Baghdad had fallen. So we never fought over that area.

But there was a lot of planning done for the post-war. Everyone was concerned about a civil war. It didn't happen. Everyone was worried about humanitarian crisis. It didn't happen. I remember being in a meeting where there were concerns expressed about 1 million internally displaced refugees; never happened.

So I think, you know, in these war situations where there was some level of ambiguity that's to be expected, you also have to give credit where credit was due. And we are in a situation, about 15 months after the war, where we have a sovereign, democratic government in Iraq that's preparing for elections in January.

We've got a similar situation in Afghanistan. The president has consolidated these two victories and turned them into allies in the heart of the region where the war on terror is being fought. That value cannot be underestimated.

BLITZER: What do you think, Wendy? What's your response to that?

SHERMAN: Well, I think we have a very tough day today. We have French citizens who've been kidnapped. We have further bombings in Kabul, Afghanistan, where we're supposed to be making progress. We have reports today that Pakistan is having trouble continuing to fight the war on terror in spite of all the help they've gotten from the United States of America.

And although I'm very glad that Dan is back safe and sound, many Americans have lost their lives. Many more have been maimed. And we still have no plan.

We have an election coming in January. We all want that to go well. But we don't have Iraqi security forces and police trained and ready to go.

SENOR: Actually, Wolf, in the fiercest fighting in the last couple of weeks, two battalions of the Iraqi security force has performed incredibly well. I've heard that from Iraqi officials and American officials. Two weeks ago in Kufa, there was an operation against a mosque conducted solely by the 36th battalion of the Iraqi National Guard.

I don't doubt that there are some tough days. We have some now. We'll have some more. Wendy is right.

But I think it's important to look past the daily events that are furnishing the headlines and look at the broader context, the undercurrents that are shaping Iraq's political development, because that has the potential to stimulate reform movements throughout the country and provide an alternative to these regimes that are harboring terrorists.

BLITZER: Wendy, a lot of Democrats, themselves supporters of John Kerry, are frustrated that he doesn't seem to have a strong plan of his own to deal with Iraq. They're confused by the various statements he's made. On the one hand, he supported the president, the authorization he needed to go to war. On the other hand, he says, if he had to do it all over again, even though he criticized the way the president went to war, he would do it all over again.

You understand why a lot of people are confused where John Kerry himself stands on the Iraq situation?

SHERMAN: Let me see if I can be crystal clear on behalf of Senator Kerry.

Senator Kerry gave the authority to the president because he believes we have one commander in chief. And John McCain gave authority to President Clinton on every single issue of war and peace, because he believes in a strong commander in chief.

But that doesn't mean that you give a president a blank check. And when Senator Kerry saw that President Bush had no plan for the peace, had no plan to make sure our soldiers had body armor, had no plans to make sure that we had adequate planning for carrying out the war and the aftermath of the war, he did withhold his support, because he wanted to make sure that the president did what was necessary to make this secure. John Kerry believes in responsibility and accountability, and we have seen, in the war in Iraq, really no responsibility for the insurgency that we've seen on terms of administration planning. On terms of intelligence reform, we haven't seen accountability. And on the prison abuse, we haven't seen accountability. We have a lot of calls for it, but no action.

BLITZER: I'm going to ask both of our guests to stand by. We're going to continue more of our discussion on Iraq, a pivotal issue in this U.S. presidential campaign. Wendy Sherman, Dan Senor are going to be with us.

Also to our viewers, please don't forget our Web poll question of the week: Will you watch President Bush's acceptance speech Thursday night? You can vote right now. Go to cnn.com/lateedition. We'll have the results coming up in our next hour.

Also ahead, what will be the Republicans' main message? We'll talk with one of the convention's key speakers, Maryland Lieutenant Governor Michael Steele. Some say he's the Republicans' answer to Barack Obama.

"LATE EDITION," live from New York, will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to Madison Square Garden, the home of this convention. In just a few minutes, we'll get back to our conversation with Wendy Sherman and Dan Senor on the latest developments in Iraq, a key issue in this campaign.

First, though, let's go to CNN headquarters in Atlanta for a quick check of what's in the news right now.

(NEWSBREAK)

BLITZER: In a moment, we'll go to the streets of New York. Massive demonstrations under way right now in New York City against President Bush and his policies. We'll go there. We'll have a live report.

First, though, Iraq: More on the situation unfolding right now. We're continuing our conversation with Dan Senor, the former coalition spokesman; Wendy Sherman, she's an adviser to the Kerry campaign, former counselor at the State Department.

Dan Senor, Wendy, when we ended that last round, she was making the point that John Kerry have a plan, a very different plan than President Bush. He can get the international allies on board to work out a peaceful situation for Iraq, a situation that this president, your president, the man you support, won't be able to do.

SENOR: John Kerry has said that he will withdraw American troops within six months, so the terrorists know that they will only have to wait six months and one day to fight another day. It sends a very bad message to our new allies in the region, Prime Minister Allawi, certainly President Karzai. It sends a dangerous message to allies over the world -- there are over 30 nations working with us -- that we aren't going to stick it out.

He belittles the contributions, the significant contributions of our coalition countries, when he refers to their work as window dressing. It doesn't strike me as a very deft diplomatic strategy.

Look, I think, Wolf, where we are, at best, two months before Election Day, when John Kerry's asking voters to go into the ballot booth and select him as commander in chief, most don't know where he stands on Iraq and the other war-on-terror issues.

At worst, his position keeps changing to suit his political needs, as one of his top foreign policy advisers, Senator Biden, has suggested. So I think, either way, we're in a position we don't have a fully formed debate here.

BLITZER: Wendy, I'll let you respond. Go ahead.

SHERMAN: I think that what we have is a very serious situation in Iraq, a very serious situation in Afghanistan. The war on terror still rages. The war in Iraq still rages.

Senator Kerry's quite clear about what he would. He has, as a goal, a reduction of troops, a serious reduction in troops in six months. But that's a goal, and it's predicated on some things happening: having elections, having Iraqi security forces and police forces well trained, having the international community and the United Nations back in Iraq.

And a lot of those things could take place if we had a change in leadership and a dynamic change internationally.

Senator Kerry's about being stronger at home and being respected in the world. We have lost respect in the world. Even Karl Rove has said that the prison abuse scandal has set us back a generation in much of the world for what went on.

So we have a lot of work to do. And I think the only way we can get that work done is to have a commander in chief who takes responsibility and is held accountable.

BLITZER: All right, Wendy, just for the record, where did Karl Rove say that?

SHERMAN: I'd have to check for you, but he did in an interview.

BLITZER: All right, I don't remember that, but maybe Dan Senor does.

SENOR: No, I've never seen that statement.

BLITZER: All right. But what about the point, though, that the prison abuse scandal, at the Abu Ghraib prison -- you spent 13 months in Iraq -- has set America back, its reputation for a country that doesn't tolerate torture, it's set this country back. You acknowledge that?

SENOR: I acknowledge that the Abu Ghraib situation was a serious problem, but one thing that you don't realize unless you're on the ground is that most Iraqis saw American accountability, American justice at work, the transparency of the judicial process, the court proceedings, the court martial proceedings in Iraq, where Arab journalists were allowed full access.

Every Arab satellite channel carried live Secretary Rumsfeld's hearings before the Armed Services Committee, where he took responsibility. Arab journalists are starting to pressure their own governments, saying that they should hold their own governments accountable the way America does. That's positive. That's the kind of discussion, and debate, and reform we're trying to stimulate throughout the region.

And President Bush has got a plan and strategy going forward, as Senator Kerry sort of back and forth on it. Again, a fully formed debate would be very helpful.

BLITZER: All right. We have to leave it right there. Dan Senor, Wendy Sherman, thanks to both of you for joining us.

SHERMAN: Thank you, Wolf.

SENOR: Thank you.

BLITZER: A good discussion on Iraq, a key issue clearly here in the United States in this campaign and around the world.

Republicans arriving here in New York City right now, expectations they certainly have of a highly successful convention. But the parallel story unfolding right now, what's happening outside of Madison Square Garden, on the streets of New York. What's happening right now, namely, protests, anti-GOP demonstrations already way under way.

BLITZER: CNN's Jason Carroll following that story. He's joining us now live.

Where are you, Jason? What's happening?

JASON CARROLL, CNN CORRESPONDENT: Well, Wolf, I'm really in the thick of things. I'm actually standing -- I'm walking right in front of Madison Square Garden. You can imagine, the people who are in front of the Garden extremely vocal.

This is where they're all speaking. (UNINTELLIGIBLE) they are anti- war. They are anti-Bush. They are pro-labor, pro-immigrant.

Right now joining me, two of the protesters who've been sort of walking along here (UNINTELLIGIBLE) dancing.

With all of these different people, with all of these different points of view, what is the one message that you want to get across out here?

UNIDENTIFIED FEMALE: I think really we stand for peace and democracy. That's what we came out here for. The Bush administration does not stand for that. And we want people to know across this country, there are millions of people here, millions of people abroad that will not put up with an administration that does not promote democracy both locally, nationally and abroad.

CARROLL: All right. Also, there's been much talk about Central Park. Your organization was denied a permit to rally in Central Park when this march is over, but we're hearing some people will end up there anyway. Is there any more about this?

UNIDENTIFIED FEMALE: (OFF-MIKE) to defend our civil rights. There have been many groups that have (OFF-MIKE). It's a political move, them not allowing us to do that. So I think people are going to go there and show their...

CARROLL: But officially you're not advocating that, are you?

UNIDENTIFIED FEMALE: We're not advocating -- we can't speak to that. We understand the court's ruling. We think it's unfair. We know, in the past, the New York Philharmonic, the Met Opera shows up, they do things in the park. In the '60s, we took over the park. We're a little unclear as to how it's different today, August 29, 2004.

We can't speak to what will happen after this protest. We know the court's decision, but were unfair. And we still came out in record numbers to support peace and democracy in the U.S. and abroad.

UNIDENTIFIED MALE: Bush, we don't want you!

CARROLL: Thank you very, very much.

In terms of security out here, Wolf, obviously what they have is barricades, and you can see through all these people there, there are some barricades on both sides to prevent marchers from straying off the path. Also, a strong police presence all over here to make sure and keep an eye on these protesters. Obviously, these police really keeping an eye on Central Park, as well.

Wolf?

BLITZER: Jason Carroll on the streets of New York, thanks very much.

Let's get some immediate reaction from the Bush-Cheney campaign. Terry Holt is the spokesman. He's joining us here live.

These demonstrations are huge, Terry.

TERRY HOLT, BUSH-CHENEY CAMPAIGN SPOKESMAN: They are huge. And I would say that that's what this country is going to war against terror about: the right to freely associate and talk your opinions through, to debate. That's what America is. And we welcome that debate. It's part of the democracy we love. BLITZER: When you organized and decided to hold the convention here in New York City, the first time Republicans have ever held a convention in New York, it was deemed at that time, only a couple of weeks before the anniversary of 9/11, a good time to come to New York City, after what this city went through only three years ago.

Did you imagine, could you ever imagine, that these tens of thousands, maybe hundreds of thousands of people, would be protesting at this time?

HOLT: I think we had some inkling. You know, the millions of dollars, the angry rhetoric, the very organized liberal left has been active and engaged in this campaign from the very beginning.

Some of the protesters have aligned themselves with moveon.org. They throw the hood over the head of the Statue of Liberty. There's quite a thing there. And the Democrats have been quite organized and associated with this protest organization from the beginning of the campaign.

BLITZER: Are you getting reports, though, that Republican delegates, 5,000 alternates and delegates who are coming in, plus supporters and activists, members of the Republican Party, are feeling a bit intimidated by these large numbers of protesters?

HOLT: Not at all, Wolf. No. I think that these folks coming to the convention are enthusiastic to be here, to hear the president and how he's going to lead us into the future. I don't think they're intimidated at all. I think they're excited.

And you know what? Organized in New York City -- this is a great town, and we're going to have a terrific time this week.

BLITZER: Is the notion of these protests here something that's caught you, to a certain degree, by surprise?

HOLT: Well, I think that the city of New York has done a fantastic job of planning for all of this. It was a well-ordered thing. They have accommodated us in a terrific way. The Garden one of the greatest places in the world to have an event.

I think we're excited about being here. And frankly, at the end of the day, the president's message will get out, and we'll be off on the campaign trail in last 60-some days.

BLITZER: Any concern over security?

HOLT: Well, obviously. You know, we're in a time of war. We have to keep that in mind. But, you know, we have never let that get us down. This country has always bounced back, has always been resilient and faced challenges. And I think we have that same attitude here in New York City this week.

Still ahead, with President Bush and Senator Kerry in a virtual dead heat right now, at least in the polls, are voters in for a nasty fall campaign? The former Democratic candidate Howard Dean sizes up the race for the White House. He'll join me.

And countering the insurgency in Iraq. The former Democratic presidential candidate, the NATO supreme allied commander Wesley Clark, formerly at least, will weigh in on what's next in Iraq and around the world.

Our "LATE EDITION" will continue from Madison Square Garden right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "LATE EDITION." I'm Wolf Blitzer, reporting from Madison Square Garden, the convention site for the Republicans, here in New York. The convention formally opens tomorrow.

Joining us now from Burlington, Vermont, the man who would have liked to have been president of the United States, the former Democratic candidate, Howard Dean. Now the former governor of Vermont, as well.

Governor, thanks very much for joining us.

Let's take a look at the latest poll numbers that we have. Time magazine, our sister publication, their brand new poll, has Bush at 46 percent; Kerry, 44; Ralph Nader, a man you debated, at 5 percent.

Incredibly close race right now. Doesn't get much closer than that, does it, Governor?

HOWARD DEAN, FORMER GOVERNOR OF VERMONT: No. But, of course, as we all know, if polls meant a lot, I'd be sitting where John Kerry's sitting right now.

So, you know, it's going to come right down the end. It's going to be a very close race, and I think John's going to win.

BLITZER: Well, take a look at three battleground states that had polls this week. The L.A. Times had polls in Ohio, for example. Bush ahead in that key state, 49-44 percent. Look at Wisconsin, the L.A. Times poll, Bush ahead 48-44 percent. In Missouri, 46 percent for Bush, Kerry for 44 percent. Those are states that this president desperately needs, obviously, but John Kerry needs them, as well.

DEAN: Sure. And I think in the end, John's going to win. The reason I think so is, if you're president of the United States, you've got to get two things right: You've got to get foreign policy right, and you've got to get the economy right. And this president's gotten both of them wrong.

After 9/11, he's taken some actions that have put us at greater risk. He's picked on the wrong country, Iraq, which is a relatively -- you know, Saddam was a tin-horn dictator who couldn't punch his way out of a paper bag, but the president's allowed Iran and North Korea to become nuclear powers on his watch.

On the economy, we know we've lost a million and a half jobs, the first president in 70 years to have lost jobs on his watch.

BLITZER: Governor, let me interrupt for a second. When you say Saddam Hussein was a tin-horn dictator, couldn't get his way out of a paper bag, your candidate, John Kerry, voted to give the authority to the president to go to war against him. If he was nothing, did he make a major mistake?

DEAN: First of all, that's not the same thing as actually going to war. Second of all, the president just simply was not capable of defending the United States. He sent over 135,000 troops we have in Iraq now. Now he's talking about cutting down troops elsewhere, including in South Korea, which John Kerry has correctly said was a mistake.

I think this president has gotten us in a lot of trouble, trouble that we didn't need after 9/11.

BLITZER: The favorable/unfavorable ratings of John Kerry are very interesting right now. This Time magazine poll, I was looking at that: favorable, only 44 percent; unfavorable, 33 percent.

He still has a problem, doesn't he?

DEAN: Well, his biggest problem is what the campaign is about. He is not that well-known. And most people are not going to pay attention to -- or the most undecided people are not going to pay attention until the last two weeks.

John is a very strong closer. I can tell you that from personal experience. And I think he's going to do fine.

He has the right message: jobs, national security policy that's consistent with American morality, health insurance and public education. The Republicans get zero for those.

The president has decided that he's going to be on the far right. I think somebody in the center like John Kerry will have a better shot at running the country right and a better shot at winning the next election. BLITZER: In that Time magazine poll, "don't know," among those who don't have a favorable or unfavorable attitude, 22 percent. So there's still a big chunk of the American public who not made up their mind about John Kerry.

DEAN: That's right.

BLITZER: The last time, Governor, you were on "LATE EDITION," you made a commotion, you made a lot of news by pointing out -- that was the same day that Tom Ridge, the secretary for homeland security, raised the threat level in parts of New York, New Jersey, Washington, D.C., amid terror reports. And you suggested, at least partially, politics was behind that.

I wonder if you've had a chance to rethink those controversial words since then.

DEAN: Yes, I think it's very likely. Now it seems, given the past events, that it's extremely likely that politics have something to do with it.

We now know that the president has broken the law. The president's campaign had two of its members working in cahoots with this Swift Boat ad, which turned out not to be true.

And so, the president himself is now responsible for an ad that's been on television that's not true. There will be an investigation about that. Unfortunately, the results won't be known until after the election.

You know, you wonder why so many people are demonstrating against the president. It's not the president's policy. It's his integrity that's in question here.

Whether the president of the United States told us the truth when we went to Iraq, whether the president of the United States told us the truth when his people put an ad on television that wasn't true, questioning John Kerry's service.

The president gets to have it both ways. He says, "Oh, no, we don't question John Kerry's service"; his own people are in cahoots with the people who put those lies on television.

This is a president whose word is no good. At least many Americans believe that, including me.

BLITZER: When you say he broke the law, those are strong words. And Governor Marc Racicot, the chairman of the Bush-Cheney campaign, was on this program earlier. He made the point that lawyers, when they're giving legal advice, that's not necessarily the same as having an active political operative working for a campaign, working for the so-called 527 advocacy groups.

Because, as you well know, Governor, if you take a look on the Democratic side, there are a lot of Democratic Party activists who are intimately involved in those same MoveOn.org or advocacy 527 groups, as well.

DEAN: Well, now, Wolf, you sound like the Republicans. Their defense is, "Oh, the Democrats are doing it too." The truth is that there's a firewall that you're -- those groups are not allowed to talk to John Kerry or his campaign, and they haven't.

However, what we have seen is two people, both of whom have resigned, which ought to tell you something, who have been intimately involved, and one of whom appeared in the ad.

That is against the law, and we're going to find out, unfortunately not until after the election.

This, really, I've often said that this administration reminds me very much of the Nixon administration. We hope we won't have the opportunity to find out after the election whether they've broken the law. We hope the American people will look at what they're doing.

You know, I'm tired of this. We saw this in the first Bush campaign, with Lee Atwater attacking, with racist ads. Then we saw it in previous times against John McCain in the primaries in South Carolina, where this president besmirched John McCain's Vietnam record.

BLITZER: All right.

DEAN: I'm sick of this. I think the American people are sick of it. We need a new president, and I'm hoping we'll get one after November.

BLITZER: We're all out of time, but one quick follow-up, Governor. When you said earlier that politics were partially behind the terror alert, raising of that level, and you pointed to the fact there hasn't been any terrorism since then, is that really what you meant to say?

DEAN: I didn't say that. What I said was, it appears from the political goings-on that there was very much of a connection. Secretary Ridge himself went out to lavishly praise the president during his announcement. Several newspapers have looked at this, including The New York Times and The Washington Post.

I might add, I'm surprised there hasn't been more play with The New York Times story this morning, or yesterday, that showed that the Abu Ghraib scandals may well reach into Secretary Rumsfeld's office.

What is going on in this administration? How come you guys aren't paying more attention to it?

BLITZER: Well, we're paying attention. Those reports, the Abu Ghraib prison investigation reaching the office of the secretary of defense, that was widely reported, once the reports, those two reports came out, the Fay report, the Schlessinger report came out last week.

Governor, unfortunately we're all out of time. We're trying to do the best job we can covering all the news here on CNN. Governor Howard Dean...

DEAN: Thanks, Wolf.

BLITZER: ... the former governor of Vermont, thanks very much.

Up next, a quick check on what's making news right now, including that latest deadly blast in Kabul, in Afghanistan. People are dead.

And our special "LATE EDITION" from New York City will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back. We're ringside here at the Republican National Convention at Madison Square Garden in New York City.

And joining us now to talk about what President Bush needs to say in his acceptance speech Thursday night, as well as what Republicans are hoping to accomplish this week, Bush adviser, the former chairman of the Georgia Republican Party, Ralph Reed.

Thanks, Ralph, very much for joining us.

RALPH REED, FORMER CHAIRMAN, GEORGIA REPUBLICAN PARTY: Thank you, Wolf. Good to be with you.

BLITZER: Only moments ago over at the Riverside Church, not far from here, the former president, Bill Clinton, railed against this administration, the Republicans, the Bush-Cheney campaign in a sermon. Listen to what he said.

(BEGIN VIDEO CLIP)

W.J. CLINTON: The other party about to convene here, putting on its once-every-four-years compassionate face, has...

(APPLAUSE)

When they go back to Washington, it's a different deal. It's run by the right-wing Southerners in the House and the Senate and those lobbying groups and their allies in the White House and the administration.

(END VIDEO CLIP)

BLITZER: Bill Clinton speaking over at the Riverside Church.

I guess he knew you were on. You're one of those right-wing Southerners who are taking charge -- lobbying groups taking charge of the Republican Party.

REED: I thought he used to be a Southerner. I thought he was from Arkansas.

BLITZER: He's a left-wing Southerner.

REED: What's wrong with being from the South? I really don't understand that kind of attack.

I mean, look, this president implemented the most sweeping reform of Medicare in 40 years, the most sweeping reform of education policy in 30 years, and the deepest tax cut, removing 18 million families at the lowest levels from the tax rolls, in post-World War II history.

So it's an agenda that's compassionate. It's an agenda that cares about seniors and children who otherwise get left behind and the poor and the needy. And I just think that's an unfortunate political mischaracterization of the president's record.

BLITZER: I think what the Democrats are frustrated by is that every four years at these conventions, as was the case four years ago at this convention, the primetime main speakers that the Republican Party puts out are by and large pro-abortion rights, pro-gay rights, against gun control, pro-affirmative action. Rudy Giuliani will be featured. Arnold Schwarzenegger will be featured.

How do you feel, as someone who feels that abortion is murder, to allow these people to take centerstage behind us this week?

REED: Well, I'm proud to be a member, Wolf, of a party that's big and diverse and embraces the full depth and breadth of America. And any time you're in a party that has the White House, the majority in the Senate, the majority in the House, majority of governors, majority of legislators and a majority of federal elected representatives, it isn't surprising that when you bring that party together, once every four years, it's a tableau that reflect's the diversity of America. So...

BLITZER: Listen to what Rudy Giuliani, the former mayor of New York, one of the primetime speakers, what he told Tim Russert on "Meet the Press" this morning.

REED: OK.

(BEGIN VIDEO CLIP)

RUDY GIULIANI, FORMER MAYOR OF NEW YORK CITY: With regard to choice, I believe in a woman's right to choice. I think that's the right way. It should be decided -- it's already been decided constitutionally.

(END VIDEO CLIP)

BLITZER: He went on to say that there are other views in the Republican Party. But how do you personally feel when you hear a Republican like Rudy Giuliani make that statement, knowing your moral convictions on the issue of abortion?

REED: Well, Wolf, you know, newsflash: A political party is not a church. It's a political institution. We live in a democracy. We respectfully disagree with others. That's what a democracy is all about.

So I think the world of Rudy Giuliani. I'll tell you, he came down to Georgia when I was party chairman, and Saxby Chambliss and Governor Sonny Perdue were in part elected because he came down and helped us. So he comes and helps people that he disagrees with on an occasional issue, and I help people that I occasionally disagree with on an issue.

BLITZER: All right, so you don't have a problem with his stance on abortion rights?

BLITZER: They're not speaking between 10 and 11 at night, when the three broadcast networks are showing this convention to most Americans.

REED: Wolf, it's not our fault that the broadcast networks have cut back to only an hour. If you define primetime as 8 to 11 p.m., which is how it's always been traditionally been defined, Elizabeth Dole's in primetime, Brownback's in primetime...

BLITZER: We will have all of that here on CNN, the cable networks absolutely. But the broadcast networks won't.

REED: Well, now, wait a minute, let me finish. Senator Zell Miller, who is a Democrat, but also pro-life and pro-family and solid conservative from my state, he's going to be in primetime.

And, you know, I'll tell you something else, Wolf. I may be a little biased on this, but I think we got the two best conservatives in America, President George W. Bush and Vice President Dick Cheney. They're the two most important ones, and they're going to be in primetime...

(CROSSTALK)

BLITZER: They're both good conservatives, but the vice president this past week made some headlines when he spoke about his daughter, spoke about gay rights, spoke about the constitutional amendment that the president and you would like to affirm marriage only between a man and woman. Listen to what the vice president said.

(BEGIN VIDEO CLIP)

CHENEY: Lynne and I have a gay daughter, so it's an issue that our family is very familiar with. We have two daughters, and we have an enormous pride in both of them. They're both fine young women.

My general view is that freedom means freedom for everyone. People ought to be able to free -- ought to be free to enter into any kind of relationship they want to.

(END VIDEO CLIP)

BLITZER: Do you agree with the vice president?

REED: No, I don't.

I think the world of him, by the way. I think he's one of the finest public servants in the country. I know him. I've gotten a chance to work with him. I think he's a terrific human being and great vice president, arguably the most effective vice president in modern times.

But on that issue, as he correctly said -- you didn't show this part of it. He went on to say, look, the president sets the policy.

And the president believes -- and by the way, the overwhelming majority of the American people believe, according to a CBS-New York Times survey, about 60 percent -- that if activist judges from the bench are going to redefine one of the most precious and time-honored institutions in the history of Western civilization without the consent of the governed, then we don't have any choice but to amend the Constitution to make it clear that marriage is a man and a woman.

BLITZER: But they don't believe that it would require a constitutional amendment. They believe...

REED: That's not true.

BLITZER: ... like the vice president, this should be left to the states.

REED: No, that's not...

BLITZER: You didn't have the votes in the Congress to get that constitutional amendment going even the first step.

REED: Well, you know, any constitutional amendment starts off here and builds. But, look, an amendment, a state-based version of this, passed with 71 percent of the vote in Missouri a few weeks ago on a day when...

BLITZER: We're talking about a federal constitutional...

REED: Yes, and in the CBS-New York Times poll, 60 percent of the American people said they supported an amendment. So, I think that's where the president is. That's where the American people are. That's a mainstream position.

BLITZER: I want to ask you about the story that was in The New York Times yesterday about an organization called the Council for National Policy. What is that?

REED: It's an organization of like-minded conservatives that gets together a few times a year. And they talk among themselves about how to advance their public policy views. BLITZER: Are you a member of that organization?

REED: No. I have been in the past. I'm not a member now.

BLITZER: But you spoke to them recently?

REED: Yes, I did.

BLITZER: One of the things in The New York Times, they said, the media should not know when or where we meet or who takes part in our programs before or after a meeting. This organization, the Council for National Policy. It's almost described as a secretive, very conservative, right-wing group that meets with top officials like yourself and plots strategy.

REED: I think that's a mischaracterization. I think it's like- minded individuals who believe in conservative public policy views. And they get together a few times a year. And I gave them the same briefing that I'd give to the Chamber of Commerce or any group. The point of my briefing was George W. Bush is going to win on November 2nd.

BLITZER: Do you see anything wrong with an organization that tells its members, you have to be quiet, you can't talk about this, the media can never know anything about what we do, this has to be a secretive group?

REED: Well, I really don't want to make a comment on their policy based on a third-party representation. I'd have to talk to them to find out.

BLITZER: Because you were once a member, though?

REED: Yes, I was.

BLITZER: And why did you quit?

REED: Well, I was just busy doing other things. I mean, I'm part of the Bush campaign and chairman of the party and been doing other things.

BLITZER: But is there a protest or anything that we should interpret from your leaving?

REED: No.

BLITZER: I want to play also this ad that ran against Max Cleland in your home state of Georgia. When he was defeated, and there was a lot of ads going up against him, I want to put that up on the screen right now.

(BEGIN VIDEO CLIP)

ANNOUNCER: As America faces terrorists and extremist dictators, Max Cleland runs television ads claiming he has the courage to lead. He said he supports President Bush at every opportunity, but that's not the truth.

(END VIDEO CLIP)

BLITZER: That was an ad Saxby Chambliss -- John McCain, at the time, said, "I'd never seen anything like that ad. Putting pictures of Saddam Hussein and Osama bin Laden next to the picture of a man who left three limbs on the battlefield -- it's worse than disgraceful. It's reprehensible."

You understand why a lot of people around the country are furious at Republicans, not necessarily you personally, but Republicans for putting those kinds of ads up on television?

REED: Well, Wolf, let me say this. I'm the son of a Vietnam veteran, and I'm the son-in-law of a Vietnam veteran who did two tours of duty and a helicopter pilot in combat situations in Vietnam.

I honor Max Cleland's service. He's an American hero, and he paid the ultimate sacrifice to serve his country.

BLITZER: Was it right to put his picture up there with Osama bin Laden and Saddam Hussein?

REED: Well, I think that's a distortion of what the ad says, frankly...

BLITZER: People looking at the picture, they see that pretty clearly, that there's a linkage there.

REED: No, I don't agree with that. I think what it said was that we're in a war on terrorism, and under the script that we're facing a war on terror -- it didn't put Cleland in that script -- it said here's who we're facing.

Then it said, in that war, Max Cleland says he supports the president. But the record showed that Max Cleland voted 11 times against giving the president the hiring flexibility in organizing the Department of Homeland Security.

And, Wolf, these are the facts. Faced with supporting the president in the war on terror or supporting public employee unions, he voted with the public employee unions.

Now, he has every right to do that, and the people of Georgia have every right to elect a senator who supports the president, which is what they did.

BLITZER: The former president, Bill Clinton, in that sermon today, he charged the Republicans are bearing false witness against John Kerry now, the way you did the same thing in smearing Max Cleland and earlier John McCain, in the South Carolina primary, when he was challenging George Bush.

REED: Well, I think sometimes you tell the truth, and people don't like you to tell the truth. The fact is that Zell Miller, who was our other senator, not only voted with President Bush, but cosponsored a bipartisan homeland security bill that would have given the president that hire-fire flexibility in organizing that department. And Max Cleland just chose to vote with the government employee unions, rather than support the president.

Again, he had every right to do that, but it is a legitimate point of debate in a U.S. Senate race...

BLITZER: All right. So, the bottom line, you have no problem with that ad?

REED: No.

BLITZER: OK. Ralph Reed, thanks very much.

REED: You bet. Good to be with you.

BLITZER: Good luck with the convention this week.

REED: Thanks, Wolf.

BLITZER: Up next, the controversy over Democratic presidential candidate John Kerry and his Vietnam War record: How severely did it wound his campaign? We'll speak with Senator Kerry's fellow Democrat, himself a Vietnam War veteran, retired General Wesley Clark.

"LATE EDITION" will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "LATE EDITION."

Republicans are hoping for a big convention bounce for President Bush. If that happens, what will it take for the Democratic nominee, John Kerry, to get back in the game?

Joining us now for some insight on that and more, Kerry supporter, the former Democratic presidential candidate, the former supreme allied commander of NATO, retired General Wesley Clark.

General, thanks very much for joining us.

John Kerry really appears to have been hurt by the Swift Boat Veterans for Truth ads. In the latest CNN-USA Today-Gallup poll, it shows that Kerry's military service, more Americans are now more likely to vote -- or have asked, are you more likely to vote for him, August 1st, 41 percent said yes. But that's gone down to 22 percent.

What's wrong? What's wrong with what's going on right now? All these Vietnam War veterans coming forward and complaining about what John Kerry did during and after he got back from Vietnam.

GEN. WESLEY CLARK (RET.), FORMER NATO ALLIED SUPREME COMMANDER: Well, first of all, Wolf, I think that it has captured a certain degree of public attention. I was one of those people who didn't agree with John Kerry when he did it at the time back in 1971, '72. I was still in uniform.

I believed in what the country was doing at the time, but I do believe this: that people have the right and, indeed, an obligation to speak out. And John Kerry did that, and I respect him for his moral courage.

And I hope that as people see more of this, if this controversy continues, that they'll understand he's a young man who had strong beliefs and he had the courage to speak out. And that's what we're looking for in our president.

BLITZER: John O'Neill was one of those swift boat commanders, in fact, took over Kerry's boat after Kerry left. He wrote in The Wall Street Journal on Friday, he wrote this: "He disgraced all legitimate Vietnam War heroes when he falsely testified to Congress that we were war criminals. Once Mr. Kerry decided to apply for the commander in chief's job with a war hero resume, we felt compelled to come forward to explain why he is unfit for command."

What's wrong with all these veterans coming forward and testifying to what they saw at the time and what they believe John Kerry did?

CLARK: Well, John Kerry didn't say that all of us who served over there were war criminals. He said he'd heard stories. That's what he reported. He was worried about the condition of the American armed forces and what the impact of Vietnam would be on the American armed forces. And he was right to draw attention to that impact because it was a tough thing.

I stayed in the Army afterwards. It took us a long time to recover. And there were people who did things that were wrong. But John Kerry, like the rest of us, honors those that served. We believe that our veterans did a great job there, the people in Vietnam. Our people certainly in Vietnam did a great job.

BLITZER: Did he make a mistake -- General, did John Kerry make a mistake when, at the Democratic Convention in Boston, he really wrapped himself around this entire Vietnam experience he had and paid very little attention, if any, to the nearly 20 years, 20-year record in the Senate?

CLARK: I think it's very important for the American people to have a commander in chief at this time who has been through the experience of combat as a young officer or a young soldier. Because, when you've gone through that experience, it affects the way you make decisions thereafter. And that's what John Kerry was trying to say.

He has sympathy, he has understanding for what's going over there on the ground. He's not going to commit the forces until it's the absolute last resort. And I think that's what the American people are looking for in a commander in chief.

He's been there. He's heard the thump of the mortars. He's seen the flash of the tracers. He knows what fear is. He knows what people are going through. And I think that's the kind of a seasoning that a country that's at war is looking for in a commander in chief.

BLITZER: All right. On that note, General Clark, we have to leave it, unfortunately. Thanks very much for joining us.

For both the Republicans and Democrats, the conventions are a time to showcase the party's rising stars. Joining us now, someone who's generating a lot of buzz in GOP circles, one of the convention's key speakers, he's the Republican lieutenant governor of Maryland, Michael Steele.

Lieutenant Governor, thanks very much for joining us.

LT. GOV. MICHAEL STEELE (R), MARYLAND: It's good to be here.

BLITZER: Up front, I live in Maryland. So, I have to announce that.

Why do you believe you were picked to give one of these keynote, one of these primetime speeches?

STEELE: I don't know. I've worked very hard in the party. I think I have a good feel of where the party is, at the grass roots. I've been a grassroots activist for a long, long time and was county chairman and state chairman, someone who's worked at the national and local level.

I think I bring a different perspective. I tend to listen to a lot of folks and try to incorporate that in the outreach efforts that the party has undertaken in the past.

BLITZER: You have heard some comparisons saying you're the Republican Barack Obama.

STEELE: I know.

BLITZER: He gave the keynote speech at the Democratic Convention.

STEELE: Well, I'm not giving a keynote, unfortunately, but, you know, Barack Obama gave a great speech. He gave a great Republican speech. I hope to do the same thing on Tuesday night.

BLITZER: When you say he gave a great Republican speech, he's a pretty liberal guy, and he made that clear in that speech. STEELE: Yes, but the rhetoric was very, very traditional and very conservative in many respects, in terms of talking about some of the values that the party, our party, the Republican Party's been talking about for a number of years.

It reminded me of the conversation we had many years ago on welfare reform. We had been talking about welfare reform, reform, reform. And the minute the Dems did it, everybody was like, "Oh, this is good."

But, you know, we've been in the trenches on a number of issues that are important to communities all across this country.

BLITZER: Are you going to give a moderate kind of speech when you deliver that speech?

STEELE: I think I'm going to give a traditional Republican speech.

BLITZER: Are you one of those pro-abortion rights Republicans?

STEELE: I am a pro-life, Roman Catholic, African-American Republican, and from Maryland, no less.

(LAUGHTER)

So you know I have a bunch of issues I've got to work out. But...

BLITZER: Why do the Republicans in general have such a hard time getting support from African-Americans?

STEELE: Well, that's a recent phenomenon. You have to understand the history. I mean, African-Americans, Republicans were very much tied together up until about the 1960s.

That history changed as a result of the civil rights era. We took a different strategy politically as a party, which I think was an unfortunate strategy, which has lent itself to the break that we have today.

Chairman Gillespie, President Bush are working very hard to reignite the relationship. Then there are folks like me on the grass roots who are trying to do the same thing.

BLITZER: There was some controversial advice from the Republican governor of Maryland, your state, where I live as well, Robert Ehrlich, Jr. He said he should not, in all likelihood, come to Maryland. "My advice to him," the president, "is not to come to Maryland. We're not terribly competitive."

Is it a foregone conclusion that Maryland will vote for John Kerry?

STEELE: I won't give it a foregone conclusion, because I look at history and I saw that President Reagan won Maryland in '84, President Bush, Sr. won it in '88. And I think President Bush, Jr. has the ability to do the same thing.

And so the governor and I have talked about this and how we approach it. I'm going all-out for the president in Maryland. I know the governor is, too.

I think he was just saying, in terms of spending a lot of dollars which could be spent elsewhere, that Maryland's not a state you're going to spend those kinds of dollars.

We're going to be on the ground, though. Our folks are fired up, and we're ready to rock and roll.

BLITZER: We'll be watching your speech. Don't be nervous.

STEELE: Oh, I'm not nervous.

(LAUGHTER)

Never nervous.

BLITZER: Michael Steele, the lieutenant governor of Maryland. Thanks very much for coming on.

STEELE: All right. Thank you so much, Wolf. It's good to be with you.

BLITZER: And that's your "LATE EDITION" for Sunday, August 29th. Please be sure to join me next Sunday and every Sunday at noon Eastern for the last word in Sunday talk.

I'm here Monday through Friday, twice a day, noon and 5 p.m. Eastern. Where we'll be reporting all week from New York.